Quit the bull dust please corporate Australia!

I’m among the general population’s most sceptical 1%. For example, if I were in your shoes right now, I’d question that claim. But my workmates are likely to confirm that I rarely believe anything much, unless it’s from a highly trusted source (of which there are very few) or backed up by evidence.

When you can’t trust anything anyone says, you spend a lot of time reading fine print. And it often leads to some interesting discoveries that only feed your (hopefully) productive scepticism.

I’m among the general population’s most sceptical 1%. For example, if I were in your shoes right now, I’d question that claim. But my workmates are likely to confirm that I rarely believe anything much, unless it’s from a highly trusted source (of which there are very few) or backed up by evidence.

When you can’t trust anything anyone says, you spend a lot of time reading fine print. And it often leads to some interesting discoveries that only feed your (hopefully) productive scepticism.

Take the butter-like spread in our office fridge – the popular Olive Grove mild tasting ‘classic spread with cholesterol free olive oil’. It has olives in the name, photos of olives on the packaging and more olive oil propaganda on the inner wrap.

Although the wording of the product name has been very carefully crafted, most consumers won’t read the fine print and probably believe that olive oil is the predominate form of oil in this product.

The reality is that just 21% of total contents come from olive oil, in a product which is 65% vegetable oil. It’s easy to conclude that other vegetable oils in the product are both less marketable and less expensive, hence the obfuscation. And, for the conspiracy theorists, that 21% olive oil is down from 23% in 2005, according to an old CHOICE report I found online.

The lesson is clear – if you want to know what you’re getting, don’t believe the marketing message, focus on the fine print.

This experience has obvious implications for investors, particularly at reporting time. At least some part of my scepticism has been shaped by many years of reading company announcements. Increasingly, company reporting is less about an unambiguous presentation of facts, and more about public relations.

As American writer Alan Harrington put it, ‘I have found [public relations] to be the craft of arranging truths so that people will like you. Public-relations specialists make flower arrangements of the facts, placing them so that the wilted and less attractive petals are hidden by the sturdy blooms’.

We’ve discussed the use of spin in many past reviews, most recently in an Investor’s College article titled The art of reading between the lines. In this blog piece, though, I’m looking for help from the Doddsville community and our analytical team. I’m fed up with the PR-spin and hope that by bringing such behaviour to light, we can show corporate Australia that they’re not fooling everyone, and hopefully encourage and reward some better behaviour in the process.

Prime example

Here’s an example from the one company announcement I’ve read so far this morning. Prime Infrastructure, the owner of a portfolio of reliable infrastructure assets and a stock we’ve recommended to our subscribers, today released a performance update. Below, I’ve listed Prime’s various investments and the key comments from management:

Dalrymple Bay Coal Terminal – ‘slightly ahead of expectations’.

WestNet Rail – ‘in line with expectations’.

Euroports – ‘in line with expectations’.

Powerco – ‘in line with expectations’.

IEG – ‘in line with expectations’.

NGPL – ‘broadly in line with expectations’.

Broadly? Those who’ve read company announcements for any length of time will now have only one question, ‘how broadly?’ That’s because they already know for certain that the NGPL result was below expectations, and now want to know by how much.

The answer is that lower gas prices lead to both lower sales values and mark-to-market inventory adjustments, resulting in EBITDA for the six months to 31 December 2009 of US$306.2m, down from $347.7m in the same period last year.

The truth is usually available for anyone who is prepared to look closely, but that’s not what this article is about. It’s this sort of PR guff that makes me want to grab the latest 300-page annual report (mostly filled with ASX good governance principles) and, broadly, clip the writer over the head.

It's also a slap in the face to shareholders, the economic owners of the business, who foot the bill for the salaries of writers and management (which share responsibility for this behaviour) and the millions of dollars wasted in the production of what ought to be an honest and candid account of a company's progress, or otherwise.

There will be many classic examples of carefully crafted spin published over the next two and a half weeks of reporting season. In the past, I’ve taken what I could from such announcements, and had a chuckle at others.

But this year we can highlight such silliness in the comments section below, for the benefit of all readers and the shaming of writers. At the least, we’ll all get a laugh. If you come across PR drivel over the next few weeks, please let us know about it. A wilted flower goes to whoever finds the most egregious example of corporate spin.

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